Administrative Guidelines: Subsidy Layering Review for Project-Based Vouchers, 12001-12007 [2020-04147]

Download as PDF Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices DEPARTMENT OF HOMELAND SECURITY Federal Emergency Management Agency [Docket ID: FEMA–2019–0004; OMB No. 1660–0011] Agency Information Collection Activities: Proposed Collection; Comment Request; Submission for OMB Review; Comment Request; Debt Collection Financial Statement Federal Emergency Management Agency, DHS. ACTION: Notice and request for comments. AGENCY: The Federal Emergency Management Agency, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public to take this opportunity to comment on a reinstatement, without change, of a previously approved information collection for which approval has expired. In accordance with the Paperwork Reduction Act of 1995, this notice seeks comments on the collection of information related to disaster program accounts and debts owed to FEMA by individuals. DATES: Comments must be submitted on or before April 28, 2020. ADDRESSES: To avoid duplicate submissions to the docket, please use only one of the following means to submit comments: (1) Online. Submit comments at www.regulations.gov under Docket ID FEMA–XXXX–XXXX. Follow the instructions for submitting comments. (2) Mail. Submit written comments to Docket Manager, Office of Chief Counsel, DHS/FEMA, 500 C Street SW, 8NE, Washington, DC 20472–3100. All submissions received must include the agency name and Docket ID. Regardless of the method used for submitting comments or material, all submissions will be posted, without change, to the Federal eRulemaking Portal at http://www.regulations.gov, and will include any personal information you provide. Therefore, submitting this information makes it public. You may wish to read the Privacy Act notice that is available via the link in the footer of www.regulations.gov. jbell on DSKJLSW7X2PROD with NOTICES SUMMARY: You may contact the Information Management Division for copies of the proposed collection of information at email address: FEMA-InformationCollections-Management@fema.dhs.gov or Zita Zduoba, FEMA Finance Center, FOR FURTHER INFORMATION CONTACT: VerDate Sep<11>2014 17:27 Feb 27, 2020 Jkt 250001 Office of the Chief Financial Officer, at (540) 504–1613. SUPPLEMENTARY INFORMATION: Under the Debt Collection Act as amended (31 U.S.C. 3701, et seq.), the Federal Claims Collection Standards (31 CFR parts 900– 904), and the Department of Homeland Security (DHS) regulations (6 CFR Part 11); the Administrator of the Federal Emergency Management Agency (FEMA) is: (1) Required to attempt collection of all debts owed to the United States arising out of activities of the FEMA; and (2) for debts not exceeding $100,000, authorized to compromise such debts or terminate collection action completely where it appears that no person is liable for such debt or has the present or prospective financial ability to pay a significant sum or that the cost of collecting such debt is likely to exceed the amount of the recovery (31 U.S.C. 3711(a)(2)). This proposed information collection previously published in the Federal Register on July 19, 2019 at 84 FR 34918 with a 60-day public comment period. No comments were received. This information collection expired on June 30, 2019. FEMA is requesting a reinstatement, without change, of a previously approved information collection for which approval has expired. The purpose of this notice is to notify the public that FEMA will submit the information collection abstracted below to the Office of Management and Budget for review and clearance. Collection of Information Title: Debt Collection Financial Statement. Type of information collection: Reinstatement, without change, of a previously approved information collection for which approval has expired. OMB Number: 1660–0011. Form Titles and Numbers: Debt Collection Financial Statement, FEMA form 127–0–1. Abstract: FEMA Form 127–0–1 is used to collect information provided voluntarily by the debtor to evaluate the debtor’s financial abilities to determine if they qualify for a payment plan and set repayment terms or determine a compromise to write-off a debt in part or in full. Financial information obtained is essential to evaluate the debtor’s ability for the payment of the debt in part or in full. Debt may be a recoupment of an ineligible disaster assistance payment or improper payment to an employee. Affected Public: Individuals or households. Estimated Number of Respondents: 300. PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 12001 Estimated Number of Responses: 300. Estimated Total Annual Burden Hours: 225. Estimated Total Annual Respondent Cost: $8,206. Estimated Respondents’ Operation and Maintenance Costs: $0. Estimated Respondents’ Capital and Start-Up Costs: $0. Estimated Total Annual Cost to the Federal Government: $41,661. Comments Comments may be submitted as indicated in the ADDRESSES caption above. Comments are solicited to (a) evaluate whether the proposed data collection is necessary for the proper performance of the agency, including whether the information shall have practical utility; (b) evaluate the accuracy of the agency’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (c) enhance the quality, utility, and clarity of the information to be collected; and (d) minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses. Maile Arthur, Acting Records Management Branch Chief, Office of the Chief Administrative Officer, Mission Support, Federal Emergency Management Agency, Department of Homeland Security. [FR Doc. 2020–04128 Filed 2–27–20; 8:45 am] BILLING CODE 9111–19–P DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [Docket No. FR–6201–N–01] Administrative Guidelines: Subsidy Layering Review for Project-Based Vouchers Office of the Assistant Secretary for Public and Indian Housing, HUD. ACTION: Notice. AGENCY: This notice provides updated Administrative Guidelines (Guidelines) and requirements for Project-Based Voucher (PBV) Subsidy Layering Reviews (SLRs), to include new PBV Housing Assistance Payments (HAP) contract terms provisions, as amended by the Housing Opportunity Through Modernization Act of 2016 (HOTMA), SUMMARY: E:\FR\FM\28FEN1.SGM 28FEN1 12002 Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES and SLR requirements for MixedFinance projects that may or may not include PBV assistance. This notice also provides transparency on HUD’s expectations regarding cash flow, debt coverage ratios, net operating income, and operating expense trending requirements. FOR FURTHER INFORMATION CONTACT: Miguel A. Fontanez Sanchez, Director, Housing Voucher Financial Management Division, telephone number 202–402–4212 or Belinda Bly, Supervisor, Urban Revitalization Division, telephone number 202–402– 4104 (neither are toll-free numbers). Addresses for both: c/o Office of Public and Indian Housing, Department of Housing and Urban Development, 451 7th Street SW, Washington, DC 20410. Individuals with speech or hearing impairments may access this number through TTY by calling the Federal Relay Service at 800–877–8339 (this is a toll-free number). SUPPLEMENTARY INFORMATION: I. Background In support of HUD’s mission to create quality affordable housing, HUD provides funding assistance to incentivize affordable housing development. Subsidy layering reviews (SLRs) are undertaken to ensure the amount of assistance provided by HUD is not more than necessary to make the PBV project feasible in consideration of all other governmental assistance. SLRs prevent excessive public assistance that could result when a development proposes combining (layering) the HAP subsidy from the PBV program with other public assistance from Federal, State, or local agencies, including assistance through tax concessions or credits. SLRs for PBV assistance are required pursuant to Section 8(o)(13) of the U.S. Housing Act of 1937 (42 U.S.C. 1437f(o)(13)); section 2835(a)(1)(M)(i) of the Housing and Economic Recovery Act of 2008 (HERA); and section 102 of the Department of Housing and Urban Development Reform Act of 1989. SLRs are only for proposed PBV new construction and rehabilitation projects prior to the execution of an Agreement to Enter into Housing Assistance Payments Contract (AHAP). SLR requirements are not applicable to existing housing.1 Specifically, an SLR is not required for a project already subject to a PBV HAP contract, even if that project is recapitalized with outside 1 Section 2835(a)(1)(F) of Housing and Economic Recovery Act of 2008 (Pub. L. 110–289), enacted July 30, 2008, does not require subsidy layering review for existing housing. VerDate Sep<11>2014 17:27 Feb 27, 2020 Jkt 250001 sources of funding (i.e., a PBV HAPassisted project under contract for 10 years which then receives a tax credit award to address rehabilitation needs). PBV regulations define existing housing as units that already exist on the proposal selection date that substantially comply with Housing Quality Standards (HQS) on that date. (The units must fully comply with the HQS before execution of the HAP contract.) In addition, no SLR is required when PBV is the only governmental assistance provided to a project. Pursuant to 24 CFR 983.55, public housing agencies (PHAs) must submit a request for an SLR for a proposed PBV project when the project includes other governmental assistance. HUD can perform the SLRs in all cases; however, HUD has also delegated authority to participating Housing Credit Agencies (HCAs) as defined herein when the other governmental assistance includes Low-Income Housing Tax Credits (LIHTC).2 II. Subsidy Layering Review A. Definitions Housing Credit Agency: For purposes of this notice, an HCA is a state housing finance agency or other state agency defined by section 42 of the Internal Revenue Code of 1986. HCAs are sometimes referred to by other names, such as State Housing Finance Agencies or State Housing Corporation. A participating jurisdiction under HUD’s HOME Investment Partnerships program (see 24 CFR part 92) may also serve as an HCA. Mixed-finance development: Development or modernization of public housing pursuant to 24 CFR 905 Subpart F, where public housing units are owned by an entity other than a PHA. Other government assistance: Any loan, grant, guarantee, insurance, payment, rebate, subsidy, tax credit, tax benefit, or any other form of direct or indirect assistance from the federal government, a state, or a unit of general local government, or any agency or instrumentality thereof. B. Requesting a SLR for a PBV Award When a PHA selects a project that is either new construction or rehabilitation, as defined in 24 CFR 983.3, for a PBV award, and the project 2 Pursuant to the Housing and Community Development Act of 1992 (Pub. L. 102–550, approved October 28, 1992), as amended by the Multifamily Housing Property Disposition Reform Act of 1994 (Pub. L. 103–233, approved April 4, 1994) added a ‘‘Subsidy Layering Review’’ provision at 42 U.S.C. 3545. PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 will include forms of governmental assistance other than PBVs, the PHA must request an SLR. PHAs request an SLR through their local HUD Field Office or, if eligible, through a participating HCA. A list of participating HCAs is posted and updated periodically on the Housing Voucher Financial Management Division (FMD) website, found at: https://www.hud.gov/program_offices/ public_indian_housing/programs/hcv/ fmd. The participating HCA may charge a fee to perform the SLR, which the PHA may pay using Administrative Fees or Administrative Fee reserves. The PHA is responsible for collecting all required documentation for the SLR from the project owner. A list of all the required documentation is included in Appendix A. If after the initial submission new information becomes available, the PHA is responsible for submitting updated information to HUD or the HCA. The PHA maintains a project file with a complete set of the required documents. As part of the project selection process and application for PBVs, the project owner must disclose all HUD and/or other Federal, State, or local governmental assistance committed to the project, as well as other governmental assistance, using Form HUD 2880 (even if no other governmental assistance is received or is anticipated). If PBV is the only governmental assistance, an SLR is not required. Whether the PHA or HCA performs the SLR, the PHA must confirm that no form of disclosed assistance renders the project ineligible for PBV assistance and does not violate 24 CFR 983.54. The PHA must inform the owner if any information changes during the application process, either by the addition or deletion of other governmental assistance, the project owner must provide revised information to correct the earlier submissions to reflect the new information. If at any time (either during the application process, after AHAP execution, or after HAP execution) the owner receives supplemental HUD or new governmental assistance for the project that results in an increase in project financing in an amount equal to or greater than 10 percent of the approved SLR development budget, the owner must submit such changes to the PHA and the PHA must notify HUD or the HCA.3 The AHAP requires that the owner disclose to the PHA information regarding any related assistance from the Federal government, a State, or a unit of general local government, or any 3 24 E:\FR\FM\28FEN1.SGM CFR 4.11. 28FEN1 Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES agency or instrumentality thereof, that is made available or expected to be made available with respect to the contract units. Completion of an environmental review and environmental approval is required before an AHAP can be executed, pursuant to 24 CFR 983.153. At the time of initial submission of the SLR request, the PHA submits evidence that a request for a 24 CFR part 58 review is submitted to the responsible entity or a 24 CFR part 50 review is submitted to the Field Office. C. Analysis and Safe Harbor Standards When undertaking an SLR, HUD reviews both the development and operating costs of a project to determine whether costs are within a reasonable range, taking into consideration the project’s size, characteristics, location, costs, financing and risk factors. Costs that fall within acceptable safe harbor standards, as identified below, may move forward without further justification. If costs exceed safe harbor standards, then additional justification and documentation are required to justify the costs based on risk factors, and HUD approval is required. If the review is by an HCA, project costs exceeding the safe harbor standards must be consistent with the HCA’s published qualified allocation plan. (A) Development Standards: i. General Contractor Fees: The safe harbor standard is based on hard construction costs. The maximum allowable combined contractor fee is fourteen percent (14%) of the total for hard construction costs. For example, if construction costs are $100,000, the safe harbor amount is $14,000: • General Conditions: 6% of construction contract amount • Overhead: 2% of construction contract amount • Builder’s Profit: 6% of construction contract amount ii. Developer Fee: The safe harbor standard is a maximum of 15%. For projects combining public housing units and PBV units in a Mixed-Finance project, safe harbors are 9%, requiring no justification, above 9% and up to 12%, may be approved with justification. Fees over 12% may be approved if the PHA receives the amount over 12% and it is restricted for project costs or future phases as described in the ‘‘Cost Control and Safe Harbor Standards for Rental MixedFinance Development,’’ dated April 9, 2003 or any successor document. See Section 7 on Mixed Finance Projects below. (B) Operating Standards: VerDate Sep<11>2014 17:27 Feb 27, 2020 Jkt 250001 The maximum initial term for a PBV HAP contract is 20 years pursuant to section 8(o)(13)(F) of the 1937 Housing Act as recently amended by HOTMA, although the initial terms for other funding sources may be less. SLR requests must include an operating pro forma that reflects each year of the HAP contract initial term. All assumptions for income, expenses and debt must be clearly identified. Both the Debt Coverage Ratio (DCR) and cash flow are analyzed on a year-by-year basis. If a project has no debt, the SLR review is processed based only on cash-flow requirements, as described below in 6(C)(ii). i. Debt Coverage Ratio: HUD and HCAs analyze the PBV development’s projected DCR both on a yearly basis and trended over the term of the proposed subsidy period as an indicator of overall project health. As a HUD metric for PBV purposes, the minimum DCR is 1.10 and the maximum is 1.45. The DCR for each year is determined by dividing the net operating income for that year by the amount of the debt service for that year. Factors such as operating cost increases, rent increases, project size, unit and income mix, and vacancy rates affect net operating income. Therefore, a trending analysis is also used to evaluate the DCR over time and to determine whether the amount of assistance is excessive. HUD recognizes that some projects may have higher upfront DCRs since owners may frontload debt service to free up cash flow later in the project period for higher anticipated operating expenses, or that some projects may have higher DCRs in later years due to planned changes in financing costs, interest rates, or partnership transfers. If a project has an overall trending DCR outside the 1.10 to 1.45 range, the project may have too much governmental assistance. If a project DCR trends outside the range for an individual year, but has an overall trending DCR within the range, HUD will require justifications from the Owner or PHA to understand the project assumptions and yearly deviations. • Net operating income is defined as total operating income minus total operating expenses. The net operating income for a project must cover all repayable debt over the life of the HAP contract. • Operating expenses should be trended at a consistent fixed rate between 1% and 3% per year for the first 5 years and 3% thereafter. Justification for increases above 3% must be provided. • Rent increases should be trended yearly at a consistent fixed rate between PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 12003 2% and 3% per year. Justification is required for increases outside this range. • Vacancy rates must not exceed 7%. • Debt service is defined as the funds required to make payments on all nonforgivable loans, including any existing debt on the property. Debt service does not include forgivable/soft loans, nonrepayable grants, non-repayable federal, state or local assistance, deferred developer fees, financing fees, partnership fees, management fees, capital contributions, tax concessions, or tax credits. If the projected DCR remains between 1.10 and 1.45 during the initial term of the HAP contract, then it is assumed the project has enough cash-flow to pay operating expenses and amortized debt, and that the amount of government assistance is not excessive. HUD will require adjustments if the projected DCR in any one year falls below 1.10 and it continues to remain below 1.10 for a series of subsequent years as cash flow would not be enough to ensure stable operations. Likewise, HUD will require adjustments to PBV assistance, if the projected DCR exceeds the maximum of 1.45 in any one year and continues to remain above 1.45 for a series of subsequent years. ii. Cash-Flow: For any given year of the project’s operating pro forma, cash flow may not exceed 10% of total operating expenses. Cash-flow is defined as net operating income minus all required debt service. • If all or a portion of the developer fee has been deferred and is owed, the face value amount of the deferred developer fee (i.e., no interest earned) may be deducted from cash flow. • Operational and replacement reserves may be deducted from cash flow when reserves are adjusted by a consistent amount each year. • No further adjustments to cash-flow are permitted beyond deferred developer fees, operational reserve contributions and replacement reserve contributions. If in any given year the annual cashflow is greater than 10% of total operating expenses and it remains above 10%, it is assumed the cash generated from the government assistance is greater than is necessary to make the project feasible. Therefore, adjustments must be made by the project owner to reduce cash flow to 10% or less of operating expenses. If the owner declines, HUD will reduce PBV rents or the number of PBVs, so the project complies with the 10% requirement. E:\FR\FM\28FEN1.SGM 28FEN1 12004 Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices E. Outcome jbell on DSKJLSW7X2PROD with NOTICES D. Requesting a SLR for a MixedFinance Project For Mixed-Finance projects that also include PBVs, the SLR is handled as part of the Mixed-Finance project review process without a separate PBV SLR review. SLRs for Mixed-Finance projects are only done by HUD and may not be done by an HCA. Mixed-Finance reviews are done by HUD’s Office of Public Housing Investments (OPHI) at HUD Headquarters. This provision also applies to Mixed-Finance projects with PBVs that are undertaken as part of the Choice Neighborhoods Grant Program, as well as Choice Neighborhoods projects that have PBVs, but no public housing. This includes MTW local nontraditional development (LNTD) proposals. OPHI prepares the SLR as part of the project review process without a separate PBV SLR review. As it relates to the PBVs, MixedFinance projects must comply with the SLR standards identified above in the Notice. In addition to this review, the project will also be reviewed to assure compliance with the provisions of 24 CFR 905 Subpart F, and other applicable guidance, including the following: • The ‘‘Cost Control and Safe Harbor Standards for Rental Mixed-Finance Development,’’ dated April 9, 2003 or any successor document. • Total Development Cost (TDC) and Housing Construction Cost (HCC) limits imposed on the project, pursuant to HUD Notice PIH–2011–38 or successor notice. • The HUD Pro Rata Test, which assures that the proportion of HUD public housing funds committed to development of the project does not exceed the proportion of public housing units in the project. For example, if there are 120 units in the project and 50 are public housing, 42% of the units are public housing. Therefore, the amount of public housing funds contributed to the development of the project may not exceed 42% of the development budget, including hard and soft costs. • HUD will review the amount of LIHTC equity to be invested in the project to ensure that the sale of LIHTCs results in an amount of net tax credit equity that is consistent with amounts generally contributed by investors to similar projects under similar market conditions, and that the amount is not less than 51 cents for each dollar of tax credit allocation awarded to a project. If the project receives 51 cents or less of LIHTC equity or does not receive a market rate of equity, it is subject to additional review to reassess the project’s fees and costs. VerDate Sep<11>2014 17:27 Feb 27, 2020 Jkt 250001 (A) HUD: If HUD completes the SLR and determines the PBV assistance complies with the standards set in this Notice, where the PBV assistance will not result in excessive government subsidy, HUD will certify compliance pursuant to 24 CFR 4.13 and the local HUD Field Office will notify the PHA in writing. If HUD completes the SLR and determines that the amount of government subsidy, including the PBV assistance, is excessive, HUD notifies the PHA. The notification includes a recommendation to reduce the amount of PBV assistance or a determination that PBV assistance cannot be provided. Once the PHA receives HUD’s decision, the PHA must notify the owner in writing of the outcome and work with the owner to restructure, as needed. Revised materials must then be resubmitted to the HUD Field Office for review. (B) HCA: If an HCA completes the SLR and determines that PBV assistance complies with the above standards of this notice and does not result in excessive government subsidy, the HCA must notify the PHA and submit a certification to HUD at PIH.Financial.Management.Division@ hud.gov with a copy to the Director of the local HUD Office of Public Housing (https://www.hud.gov/program_offices/ public_indian_housing/about/field_ office) stating that the PBV assistance to be provided is in accordance with HUD SLR guidelines in this Notice and that a determination has been made that it does not result in excessive government subsidy. The AHAP/HAP contract may then be executed if the environmental approval is received. If the SLR is performed by an HCA, subsequent approval of the SLR by HUD is not required. The HCA certification must include the documents outlined in Section 10. See Appendix C for a sample HCA certification letter and Appendix A for required information. If the HCA SLR determines the public assistance amount is excessive, the HCA must notify HUD, in writing, with a copy to the PHA. The notification will include either a recommendation to reduce the amount of PBV assistance or the amount of LIHTC allocation or a determination that PBV assistance cannot be provided. HUD will consult with the HCA and the PHA prior to issuing a final determination to adopt the HCA’s recommendation or to revise it. The PHA must notify the owner in writing of the outcome and work with the owner to restructure, as needed. PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 Revised materials must then be resubmitted to the HCA and the HUD Field Office for review. When a proposal for PBV assistance is contemporaneous with the application for or award of LIHTCs, the required SLR may be fulfilled by the HCA in accordance with IRC section 42(m)(2) review if such review substantially complies with the HUD SLR requirements and guidelines. (C) Mixed-Finance Projects: If HUD completes the SLR and determines the PBV assistance and other public housing assistance complies with the above standards of this Notice for Mixed-Finance projects and thus does not result in excessive government subsidy, HUD will certify compliance pursuant to 24 CFR 4.13 and notify the PHA. For projects that fail to comply, HUD will notify the PHA, which must (i) work with the owner to restructure the project so it complies with the above standards for Mixed-Finance projects and resubmit the revised documentation to HUD for approval, or (ii) provide sufficient justification to HUD to allow HUD to approve a variation(s) from the above standards. F. Timing In accordance with program regulations at 24 CFR 983.55, a PHA may not execute an AHAP contract until after the SLR is completed and approved by HUD or the HCA. The AHAP also may not be executed until there is a completed environmental review (ER) and written approval by the responsible entity or HUD, pursuant to 24 CFR part 50 or Part 58 and PIH Notice 2016–22. The local HUD Field Office must receive the completed SLR and either approve the Request for Release of Funds or complete a Part 50 environmental review prior to notifying the PHA that it may execute the AHAP. The PHA may request an SLR and environmental review simultaneously. The Field Office confirms to the FMD and/or the HCA that the ER process is complete. If the owner reports to the PHA the addition of any governmental assistance before or during the AHAP contract when no SLR was initially required because the project had not received and did not anticipate receiving governmental assistance, then an SLR is required to be requested by the PHA at the time of the owner’s report. III. Housing Credit Agency Participation and Certification An HCA is ordinarily established for the purpose of allocating and administering the LIHTC program under E:\FR\FM\28FEN1.SGM 28FEN1 12005 Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices section 42 of the Internal Revenue Code (IRC). With HUD approval, HCAs may perform SLRs for proposed PBV projects that include LIHTCs as part of the proposed financial assistance. If there are no LIHTCs, HCAs cannot conduct the SLR. SLRs without LIHTCs will only be conducted by HUD. Currently 29 states have a HUD-approved HCA; the remaining 21 states may seek HUD approval to conduct SLRs for PBV projects, by submitting a letter to HUD notifying HUD of their intent to participate. Appendix B is sample letter. Pursuant to the requirements outlined herein, as well as the Memorandum Of Understanding (MOU) between participating HCAs and HUD, HCAs are required to provide notification to the FMD through the FMD mailbox of any SLRs approved on HUD’s behalf by no later than 30 days from the date of authorization. Notifications of approval must contain the following documentation: • Copy of the Signed HCA Certification as shown in Appendix C • The HCA’s Internal Recommendation and Sign-off • The Developer’s Disclosure of Sources and Uses of Funds • The Developer’s Operating Pro Forma Considered • Copy of the PBV Commitment/Award Letter • HUD Form 2880, and • Rent Information and Project Summary a. Project Name and Address b. PHA name and code c. Field Office name and code d. HCA Name e. PBV Type: Rental Assistance Demonstration (RAD), Veterans Assistance and Supportive Housing (VASH), and/or Regular f. Elderly, Disabled, Homeless, NonElderly Disabled, Low-Income, and/ or Veteran. g. Is the Project New Construction or Rehabilitation? h. Amount Per Dollar of Syndication Proceed i. Number of PBV Units Approved by Bedroom Size j. Debt Coverage Ratio: llll k. Project meets Cash Flow Criteria (Y/N) IV. Overview Chart The following chart summarizes the types of projects that require an SLR, the entity authorized to perform the SLR and the required certification. 102 (d) Certification is the owner’s certification of no additional government funding using form HUD 2880. 102 (d) certification required? Type of project and scenarios SLR reviewer PBV subsidy without LIHTC. However, project is new construction or rehabilitation, as defined in 24 CFR § 983.3, with 2 or more forms of government assistance. PBV existing housing, as defined in 24 CFR 983.3 ............................... PBV new construction or rehabilitated housing, but PBV is the only form of government assistance. PBV subsidy with LIHTC, new construction or rehabilitated project ...... HUD ............................................... Yes. No SLR required ............................ No SLR required ............................ No. No. HCA or HUD .................................. Mixed-finance projects, with or without LIHTC, with or without PBV, with or with other forms of government assistance. HUD ............................................... If by HCA, certification not required. Otherwise, HUD certifies. Yes. V. Monitoring HUD performs quality control reviews of SLRs performed by participating HCAs by examining the following: • If all required document and materials are available to the reviewer • If values are correctly determined within the approvable range • If values are above safe harbor standards • If documentation was provided to justify higher costs • If the subsidy was reduced correctly (if applicable) If any required documentation is not provided, or any portion of the review is performed incorrectly, HUD requires appropriate corrective action. When an SLR is performed by an HCA, subsequent approval of the SLR by HUD is not required. VI. Paperwork Reduction Act The information collection requirements contained in this notice are currently approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520) and assigned OMB control numbers 2577–0169. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid control number. Dated: February 21, 2020. R. Hunter Kurtz, Assistant Secretary for Public and Indian Housing. Appendix A: PHA Submissions PHAs are responsible for collecting information from project owners and assembling it in an SLR request submitted to the local HUD Public Housing Field Office or HCA. SLR requests must contain the following information. Assembly using a binder is recommended. Incomplete submissions will be returned. jbell on DSKJLSW7X2PROD with NOTICES Required elements of an SLR application & checklist Check 1. Subsidy Layering Review request memorandum: Clearly identify the PHA, the PHA number, the Field Office number, the project’s name, the project’s total number of units, and the number of PBV units requested. For a sample memorandum see Attachment 1 of PIH Notice 2013–11 or newer version superseding it. 2. Project Description: Short narrative identifying ownership, type of activity (rehabilitation or new construction), location (including county), total units, requested PBV units, PBV type (RAD, VASH, regular), utility allowances, bedroom distributions, supportive services (if applicable) and residential population (homeless, veteran, elderly, low-income families) The narrative should also identify any exceptions applicable to the project (e.g., number of PBV exceeding the Project Cap). VerDate Sep<11>2014 17:27 Feb 27, 2020 Jkt 250001 PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 E:\FR\FM\28FEN1.SGM 28FEN1 12006 Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices Required elements of an SLR application & checklist Check 3. Accounting Statement of Sources and Uses of Funds: Identifying each source and indicate type (loan, grant, syndication proceeds, contributed equity). Sources generally include only permanent financing and grants. If interim financing or a construction loan is proposed, provide details in project description. Separately identify detailed uses, avoiding broad categories such as ‘‘soft costs.’’ Under acquisition costs, identify purchase price separately from related costs such as appraisal, survey, title, recording and legal fees. Include separate line items representing construction contract amount, builder’s profit, builder’s overhead and total project costs. [Complete HUD Form 50156] 4. Description of funding sources: Loans including principal, interest rate, amortization, term, and any accrual, deferral, balloon or forgiveness provisions. Describe any lender, grantor, or syndicator requirements for reserves or escrows requirements. Describe if a lender receives a portion of the net cash-flow, either as additional debt service or in addition to debt service. Identify the amount of LIHTC and include IRS form 8609. 5. Commitment Letters: Lenders and other funding sources evidence their commitment to provide funding and disclose significant terms. Signed loan agreements and grant agreements meet this requirement. However, proposal letters and letters of intent do not meet this requirement. 6. Developer’s Commitment Letter: Delineating any arrangements, contributions, donations, significant terms or transfer of funds from the developer and/or participating partners such as deferred developer’s fees, cash contributions, and equity investments. 7. HOME Commitment Letter: (When applicable) Signed document clearly identifying requirements of the HOME designated units and intended rents. 8. Supportive Service Commitment: (When applicable) A signed Memorandum of Understanding that describes the type of services to be provided, frequency, terms of service and resident eligibility. 9. Appraisal Report: Based on the ‘‘as is’’ value of the property, before construction or rehabilitation, and without consideration of any financial implications of tax credits or project-based voucher assistance. An appraisal establishing value after the property is built or rehabilitated is not acceptable unless it also includes an ‘‘as is’’ valuation. The date of the appraisal to be within six months of date of submission. 10. Stabilized Operating Pro Forma: Including projected rental, commercial, and miscellaneous gross income, vacancy loss, operating expenses, debt service, reserve contributions, with cash-flow projections, and debt service ratios; income and expenses trended at a consistent percent. [Complete HUD Form 50156] 11. Low-Income Housing Tax Credit Allocation Letter: Issued by the authorized tax credit allocation agency, identifying the amount of LIHTCs reserved for the project. 12. Historic Tax Credit Letter: Issued by an authorized historic credit agency, disclosing the estimated historic tax credit amount awarded to a project located in a designated historical area. 13. Equity Contribution Schedule: If equity contributed to the project is paid in installments over time, provide a schedule showing the amount and timing of planned contributions. 14. Bridge Loans: Providing details if the financing plan includes a bridge loan where equity contributions proceeds planned over an extended time can be paid upfront. 15. Disclosure, perjury and identity of interest statement (Form HUD–2880) completed by the owner. 16. PBV award letter: Identifying the housing authority’s approval of project-based voucher assistance for the project by number of units and bedroom distribution. 17. PHA rent certification letter: Documenting proposed contract rents, utility allowances, and gross rental amounts for assisted units. Include rent reasonableness documentation or comparability analysis as evidence of rent determination and certification. 18. Environmental Clearance: Completion of the environmental review and environmental approval is required before AHAP approval can be granted. At the time of initial submission of the SLR request, submit evidence that a request for a part 58 review is submitted to the responsible entity or a part 50 review is submitted to the Field Office. jbell on DSKJLSW7X2PROD with NOTICES Appendix B: HCA Notice of Intent To Participate U.S. Department of Housing and Urban Development PIH Financial Management Division, Room 4232 451 Seventh Street SW Washington, DC 20410 By: Email: pih.financial.management.division@hud.gov Re: Intent to Participate on Subsidy Layering Reviews To Whom It May Concern: The undersigned is a qualified Housing Credit Agency (HCA) as defined under Section 42 of the Internal Revenue Code of 1986 and hereby notifies the United States Department of Housing and Urban Development (HUD) of our intention to conduct subsidy layering reviews (SLRs) pursuant to HUD’s requirements for the purpose of ensuring the combination of assistance under the Section 8 Project-Based Voucher (PBV) Program with other federal, state, or local assistance does not result in VerDate Sep<11>2014 17:27 Feb 27, 2020 Jkt 250001 excessive compensation. By signifying this notice, the undersigned hereby certifies that: Required personnel reviewed the statutes identified in Federal Register Notice (Insert new reference) Contracts and Mixed-Finance Development, and 24 CFR 983.55. The undersigned understands its HCA responsibilities and certifies it will perform SLRs in accordance with all present and future statutory, regulatory and HUD requirements. The undersign acknowledges participation continues unless and until HUD revokes this notice or the undersigned informs HUD, in writing with a 30-daynotice, of its decision to withdraw. Upon HUD approval, the undersigned shall immediately assume the responsibility of performing SLRs. Name of agency and address: Name, title and address if authorized official Phone, FAX, and email: Date of execution: Transmit signed and dated notice of Intent to Participate as a PDF attachment to Miguel Fontanez at pih.financial.management .division@hud.gov with subject line identified ‘‘Submission of Notice of Intent to PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 Participate.’’ For questions concerning the submission and receipt of the email, call the Financial Management Division at (202) 402– 4212. Appendix C: HCA Certification U.S. Department of Housing and Urban Development PIH Financial Management Division, Room 4232 451 Seventh Street SW Washington, DC 20410 By: Email: pih.financial.management.division@hud.gov Re: Certification of Subsidy Layering Review To Whom It May Concern: For purposes of providing of Section 8 Project-Based Voucher (PBV) Assistance authorized pursuant to 42 U.S.C. 8(o)(13), section 2835(a)(1)(M)(i) of the Housing and Economic Recovery Act of 2008 (HERA), section 102 of the Department of Housing and Urban Development Reform Act of 1989, and in accordance with HUD requirements, all of which address the prevention of excess governmental subsidy, I hereby certify that E:\FR\FM\28FEN1.SGM 28FEN1 Federal Register / Vol. 85, No. 40 / Friday, February 28, 2020 / Notices the PBV assistance is not more than is necessary to provide affordable housing after taking into account other government assistance for the following project: Name, address of project: Name, address of PHA: Phone, FAX, and email: Name, address of HCA: Date of HUD’s approval of HCA’s intent to participate: Name of Authorized HCA Certifying Official: Signature of Authorized HCA Certifying Official: Date: Transmit signed and dated SLR certification as PDF attachments to Miguel A. Fontanez at pih.financial.management.division@hud.gov, with a copy to the Director of the local HUD Office of Public Housing: https:// www.hud.gov/program_offices/public_ indian_housing/about/field_office, with subject line identified ‘‘SLR Certification— Project Name, City, State’’ For questions concerning the submission and receipt of the email, call the Financial Management Division at (202) 402–4212. [FR Doc. 2020–04147 Filed 2–27–20; 8:45 am] BILLING CODE 4210–67–P DEPARTMENT OF THE INTERIOR Fish and Wildlife Service [Docket No. FWS–R3–ES–2020–0005; FXES11140300000–201–FF03E00000] Draft Environmental Assessment and Draft Habitat Conservation Plan; Receipt of an Application for an Incidental Take Permit, Timber Road II, III, and IV Wind Farms, Paulding County, Ohio AGENCY: Fish and Wildlife Service, Interior. Notice of availability; request for comments. ACTION: We, the U.S. Fish and Wildlife Service, have received an application from Paulding Wind Farm II, LLC; Paulding Wind Farm III, LLC; and Paulding Wind Farm IV (collectively, the applicant), for an incidental take permit (ITP) under the Endangered Species Act of 1973, as amended, for the Timber Road II, III, and IV Wind Farms project. If approved, the ITP would authorize the incidental take of the Indiana bat and the northern long-eared bat for a 30-year term. The applicant has prepared a draft habitat conservation plan, which is available for public review. We also announce the availability of a draft environmental assessment, which has been prepared in accordance with the requirements of the National Environmental Policy Act. We request public comment on the application and associated documents. jbell on DSKJLSW7X2PROD with NOTICES SUMMARY: VerDate Sep<11>2014 17:27 Feb 27, 2020 Jkt 250001 We will accept comments received or postmarked on or before March 30, 2020. ADDRESSES: Obtaining documents: Electronic copies of the documents this notice announces will be available online in Docket No. FWS–R3–ES– 2020–0005 at http:// www.regulations.gov. Public comments will also be available online at http:// www.regulations.gov. Paper copies of the documents this notice announces will be available at the following libraries: Brumback Library, 215 W Main St., Van Wert, OH 45891; and Paulding County Carnegie Library, 205 S Main St., Paulding, OH 45879. Submitting comments: Please specify whether your comment addresses the draft habitat conservation plan, draft environmental assessment, any combination of the aforementioned documents, or other supporting documents. Please submit written comments by one of the following methods: • Online: http://www.regulations.gov. Search for and submit comments on Docket No. FWS–R3–ES–2020–0005. • By hard copy: Submit comments by U.S. mail or hand delivery to Public Comments Processing, Attn: Docket No. FWS–R3–ES–2020–0005; U.S. Fish and Wildlife Service; 5275 Leesburg Pike, MS: JAO/lN; Falls Church, VA 22041– 3803. FOR FURTHER INFORMATION CONTACT: Keith Lott, Wildlife Biologist, or Patrice Ashfield, Project Leader, via phone at 614–416–8993, via the Federal Relay Service at 800–877–8339, or via U.S. mail at the U.S. Fish and Wildlife Service, Ohio Ecological Services Office, 4625 Morse Road, Suite 104, Columbus, OH 43230. SUPPLEMENTARY INFORMATION: We, the U.S. Fish and Wildlife Service (Service), have received an application from Paulding Wind Farm II, LLC; Paulding Wind Farm III, LLC; and Paulding Wind Farm IV (collectively, the applicant), for an incidental take permit (ITP) under the Endangered Species Act (ESA; 16 U.S.C. 1531 et seq.). If approved, the ITP would be for a 30-year period and would authorize incidental take of the endangered Indiana bat (Myotis sodalis) and the threatened northern long-eared bat (Myotis septentrionalis). The applicant has prepared a draft habitat conservation plan (HCP), which covers the operation of the Timber Road II, III, and IV Wind Farms (project). The project consists of a wind-powered electric generation facility located in an approximately 65,017-acre area in DATES: PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 12007 Paulding County, Ohio. The draft HCP describes the following: 1. Permit duration; 2. Covered lands; 3. Covered species; 4. Project description and covered activities; 5. Environmental baseline and affected species; 6. Impact assessment and take authorization request for Indiana bats and northern long-eared bats; 7. Conservation plan, which includes the Biological Goals and Objectives, and measures to avoid, minimize, and mitigate the impact of the taking; 8. Monitoring and adaptive management; 9. Funding assurances; 10. Alternatives to the taking; and 11. Changed and unforeseen circumstances. Under the National Environmental Policy Act (NEPA; 43 U.S.C. 4321 et seq.) and the ESA, the Service announces that we have gathered the information necessary to: 1. Determine the impacts and formulate alternatives for an EA related to: a. Issuance of an ITP to the applicant for the take of the Indiana bat and the northern long-eared bat, and b. Implementation of the associated HCP; and 2. Evaluate the application for ITP issuance, including the HCP, which provides measures to minimize and mitigate the effects of the proposed incidental take of the Indiana bat and the northern long-eared bat. Background The project includes 134 wind turbines, with a total energy-generating capacity of 325.8 megawatts (MW). The project was constructed in several phases, during the period 2012–2020. Timber Road II is an operational facility and consists of 55 turbines with a generating capacity of 99 MW. Timber Road III is also an operational facility and consists of 48 turbines with a generating capacity of 100.8 MW. Timber Road IV is anticipated to be operational in 2020; consisting of 31 turbines, it has a generating capacity of 126 MW. The need for the proposed action (i.e., issuance of an ITP) is based on the potential that operation of the project could result in take of Indiana bats and northern long-eared bats. The HCP provides a detailed conservation plan to ensure that the incidental take caused by the operation of the project will not appreciably reduce the likelihood of the survival and recovery of the Indiana bat and northern long-eared bat, and includes E:\FR\FM\28FEN1.SGM 28FEN1

Agencies

[Federal Register Volume 85, Number 40 (Friday, February 28, 2020)]
[Notices]
[Pages 12001-12007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04147]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6201-N-01]


Administrative Guidelines: Subsidy Layering Review for Project-
Based Vouchers

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Notice.

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SUMMARY: This notice provides updated Administrative Guidelines 
(Guidelines) and requirements for Project-Based Voucher (PBV) Subsidy 
Layering Reviews (SLRs), to include new PBV Housing Assistance Payments 
(HAP) contract terms provisions, as amended by the Housing Opportunity 
Through Modernization Act of 2016 (HOTMA),

[[Page 12002]]

and SLR requirements for Mixed-Finance projects that may or may not 
include PBV assistance. This notice also provides transparency on HUD's 
expectations regarding cash flow, debt coverage ratios, net operating 
income, and operating expense trending requirements.

FOR FURTHER INFORMATION CONTACT: Miguel A. Fontanez Sanchez, Director, 
Housing Voucher Financial Management Division, telephone number 202-
402-4212 or Belinda Bly, Supervisor, Urban Revitalization Division, 
telephone number 202-402-4104 (neither are toll-free numbers). 
Addresses for both: c/o Office of Public and Indian Housing, Department 
of Housing and Urban Development, 451 7th Street SW, Washington, DC 
20410. Individuals with speech or hearing impairments may access this 
number through TTY by calling the Federal Relay Service at 800-877-8339 
(this is a toll-free number).

SUPPLEMENTARY INFORMATION: 

I. Background

    In support of HUD's mission to create quality affordable housing, 
HUD provides funding assistance to incentivize affordable housing 
development. Subsidy layering reviews (SLRs) are undertaken to ensure 
the amount of assistance provided by HUD is not more than necessary to 
make the PBV project feasible in consideration of all other 
governmental assistance. SLRs prevent excessive public assistance that 
could result when a development proposes combining (layering) the HAP 
subsidy from the PBV program with other public assistance from Federal, 
State, or local agencies, including assistance through tax concessions 
or credits.
    SLRs for PBV assistance are required pursuant to Section 8(o)(13) 
of the U.S. Housing Act of 1937 (42 U.S.C. 1437f(o)(13)); section 
2835(a)(1)(M)(i) of the Housing and Economic Recovery Act of 2008 
(HERA); and section 102 of the Department of Housing and Urban 
Development Reform Act of 1989. SLRs are only for proposed PBV new 
construction and rehabilitation projects prior to the execution of an 
Agreement to Enter into Housing Assistance Payments Contract (AHAP).
    SLR requirements are not applicable to existing housing.\1\ 
Specifically, an SLR is not required for a project already subject to a 
PBV HAP contract, even if that project is recapitalized with outside 
sources of funding (i.e., a PBV HAP-assisted project under contract for 
10 years which then receives a tax credit award to address 
rehabilitation needs). PBV regulations define existing housing as units 
that already exist on the proposal selection date that substantially 
comply with Housing Quality Standards (HQS) on that date. (The units 
must fully comply with the HQS before execution of the HAP contract.) 
In addition, no SLR is required when PBV is the only governmental 
assistance provided to a project.
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    \1\ Section 2835(a)(1)(F) of Housing and Economic Recovery Act 
of 2008 (Pub. L. 110-289), enacted July 30, 2008, does not require 
subsidy layering review for existing housing.
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    Pursuant to 24 CFR 983.55, public housing agencies (PHAs) must 
submit a request for an SLR for a proposed PBV project when the project 
includes other governmental assistance. HUD can perform the SLRs in all 
cases; however, HUD has also delegated authority to participating 
Housing Credit Agencies (HCAs) as defined herein when the other 
governmental assistance includes Low-Income Housing Tax Credits 
(LIHTC).\2\
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    \2\ Pursuant to the Housing and Community Development Act of 
1992 (Pub. L. 102-550, approved October 28, 1992), as amended by the 
Multifamily Housing Property Disposition Reform Act of 1994 (Pub. L. 
103-233, approved April 4, 1994) added a ``Subsidy Layering Review'' 
provision at 42 U.S.C. 3545.
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II. Subsidy Layering Review

A. Definitions

    Housing Credit Agency: For purposes of this notice, an HCA is a 
state housing finance agency or other state agency defined by section 
42 of the Internal Revenue Code of 1986. HCAs are sometimes referred to 
by other names, such as State Housing Finance Agencies or State Housing 
Corporation. A participating jurisdiction under HUD's HOME Investment 
Partnerships program (see 24 CFR part 92) may also serve as an HCA.
    Mixed-finance development: Development or modernization of public 
housing pursuant to 24 CFR 905 Subpart F, where public housing units 
are owned by an entity other than a PHA.
    Other government assistance: Any loan, grant, guarantee, insurance, 
payment, rebate, subsidy, tax credit, tax benefit, or any other form of 
direct or indirect assistance from the federal government, a state, or 
a unit of general local government, or any agency or instrumentality 
thereof.

B. Requesting a SLR for a PBV Award

    When a PHA selects a project that is either new construction or 
rehabilitation, as defined in 24 CFR 983.3, for a PBV award, and the 
project will include forms of governmental assistance other than PBVs, 
the PHA must request an SLR. PHAs request an SLR through their local 
HUD Field Office or, if eligible, through a participating HCA. A list 
of participating HCAs is posted and updated periodically on the Housing 
Voucher Financial Management Division (FMD) website, found at: https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/fmd. The 
participating HCA may charge a fee to perform the SLR, which the PHA 
may pay using Administrative Fees or Administrative Fee reserves.
    The PHA is responsible for collecting all required documentation 
for the SLR from the project owner. A list of all the required 
documentation is included in Appendix A. If after the initial 
submission new information becomes available, the PHA is responsible 
for submitting updated information to HUD or the HCA. The PHA maintains 
a project file with a complete set of the required documents. As part 
of the project selection process and application for PBVs, the project 
owner must disclose all HUD and/or other Federal, State, or local 
governmental assistance committed to the project, as well as other 
governmental assistance, using Form HUD 2880 (even if no other 
governmental assistance is received or is anticipated). If PBV is the 
only governmental assistance, an SLR is not required. Whether the PHA 
or HCA performs the SLR, the PHA must confirm that no form of disclosed 
assistance renders the project ineligible for PBV assistance and does 
not violate 24 CFR 983.54.
    The PHA must inform the owner if any information changes during the 
application process, either by the addition or deletion of other 
governmental assistance, the project owner must provide revised 
information to correct the earlier submissions to reflect the new 
information. If at any time (either during the application process, 
after AHAP execution, or after HAP execution) the owner receives 
supplemental HUD or new governmental assistance for the project that 
results in an increase in project financing in an amount equal to or 
greater than 10 percent of the approved SLR development budget, the 
owner must submit such changes to the PHA and the PHA must notify HUD 
or the HCA.\3\ The AHAP requires that the owner disclose to the PHA 
information regarding any related assistance from the Federal 
government, a State, or a unit of general local government, or any

[[Page 12003]]

agency or instrumentality thereof, that is made available or expected 
to be made available with respect to the contract units.
---------------------------------------------------------------------------

    \3\ 24 CFR 4.11.
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    Completion of an environmental review and environmental approval is 
required before an AHAP can be executed, pursuant to 24 CFR 983.153. At 
the time of initial submission of the SLR request, the PHA submits 
evidence that a request for a 24 CFR part 58 review is submitted to the 
responsible entity or a 24 CFR part 50 review is submitted to the Field 
Office.

C. Analysis and Safe Harbor Standards

    When undertaking an SLR, HUD reviews both the development and 
operating costs of a project to determine whether costs are within a 
reasonable range, taking into consideration the project's size, 
characteristics, location, costs, financing and risk factors. Costs 
that fall within acceptable safe harbor standards, as identified below, 
may move forward without further justification. If costs exceed safe 
harbor standards, then additional justification and documentation are 
required to justify the costs based on risk factors, and HUD approval 
is required.
    If the review is by an HCA, project costs exceeding the safe harbor 
standards must be consistent with the HCA's published qualified 
allocation plan.
    (A) Development Standards:
    i. General Contractor Fees: The safe harbor standard is based on 
hard construction costs. The maximum allowable combined contractor fee 
is fourteen percent (14%) of the total for hard construction costs. For 
example, if construction costs are $100,000, the safe harbor amount is 
$14,000:

 General Conditions: 6% of construction contract amount
 Overhead: 2% of construction contract amount
 Builder's Profit: 6% of construction contract amount
    ii. Developer Fee: The safe harbor standard is a maximum of 15%. 
For projects combining public housing units and PBV units in a Mixed-
Finance project, safe harbors are 9%, requiring no justification, above 
9% and up to 12%, may be approved with justification. Fees over 12% may 
be approved if the PHA receives the amount over 12% and it is 
restricted for project costs or future phases as described in the 
``Cost Control and Safe Harbor Standards for Rental Mixed-Finance 
Development,'' dated April 9, 2003 or any successor document. See 
Section 7 on Mixed Finance Projects below.
    (B) Operating Standards:
    The maximum initial term for a PBV HAP contract is 20 years 
pursuant to section 8(o)(13)(F) of the 1937 Housing Act as recently 
amended by HOTMA, although the initial terms for other funding sources 
may be less. SLR requests must include an operating pro forma that 
reflects each year of the HAP contract initial term. All assumptions 
for income, expenses and debt must be clearly identified. Both the Debt 
Coverage Ratio (DCR) and cash flow are analyzed on a year-by-year 
basis. If a project has no debt, the SLR review is processed based only 
on cash-flow requirements, as described below in 6(C)(ii).
    i. Debt Coverage Ratio: HUD and HCAs analyze the PBV development's 
projected DCR both on a yearly basis and trended over the term of the 
proposed subsidy period as an indicator of overall project health. As a 
HUD metric for PBV purposes, the minimum DCR is 1.10 and the maximum is 
1.45. The DCR for each year is determined by dividing the net operating 
income for that year by the amount of the debt service for that year. 
Factors such as operating cost increases, rent increases, project size, 
unit and income mix, and vacancy rates affect net operating income. 
Therefore, a trending analysis is also used to evaluate the DCR over 
time and to determine whether the amount of assistance is excessive. 
HUD recognizes that some projects may have higher upfront DCRs since 
owners may frontload debt service to free up cash flow later in the 
project period for higher anticipated operating expenses, or that some 
projects may have higher DCRs in later years due to planned changes in 
financing costs, interest rates, or partnership transfers. If a project 
has an overall trending DCR outside the 1.10 to 1.45 range, the project 
may have too much governmental assistance. If a project DCR trends 
outside the range for an individual year, but has an overall trending 
DCR within the range, HUD will require justifications from the Owner or 
PHA to understand the project assumptions and yearly deviations.
     Net operating income is defined as total operating income 
minus total operating expenses. The net operating income for a project 
must cover all repayable debt over the life of the HAP contract.
     Operating expenses should be trended at a consistent fixed 
rate between 1% and 3% per year for the first 5 years and 3% 
thereafter. Justification for increases above 3% must be provided.
     Rent increases should be trended yearly at a consistent 
fixed rate between 2% and 3% per year. Justification is required for 
increases outside this range.
     Vacancy rates must not exceed 7%.
     Debt service is defined as the funds required to make 
payments on all non-forgivable loans, including any existing debt on 
the property. Debt service does not include forgivable/soft loans, non-
repayable grants, non-repayable federal, state or local assistance, 
deferred developer fees, financing fees, partnership fees, management 
fees, capital contributions, tax concessions, or tax credits.
    If the projected DCR remains between 1.10 and 1.45 during the 
initial term of the HAP contract, then it is assumed the project has 
enough cash-flow to pay operating expenses and amortized debt, and that 
the amount of government assistance is not excessive. HUD will require 
adjustments if the projected DCR in any one year falls below 1.10 and 
it continues to remain below 1.10 for a series of subsequent years as 
cash flow would not be enough to ensure stable operations. Likewise, 
HUD will require adjustments to PBV assistance, if the projected DCR 
exceeds the maximum of 1.45 in any one year and continues to remain 
above 1.45 for a series of subsequent years.
    ii. Cash-Flow: For any given year of the project's operating pro 
forma, cash flow may not exceed 10% of total operating expenses. Cash-
flow is defined as net operating income minus all required debt 
service.
     If all or a portion of the developer fee has been deferred 
and is owed, the face value amount of the deferred developer fee (i.e., 
no interest earned) may be deducted from cash flow.
     Operational and replacement reserves may be deducted from 
cash flow when reserves are adjusted by a consistent amount each year.
     No further adjustments to cash-flow are permitted beyond 
deferred developer fees, operational reserve contributions and 
replacement reserve contributions.
    If in any given year the annual cash-flow is greater than 10% of 
total operating expenses and it remains above 10%, it is assumed the 
cash generated from the government assistance is greater than is 
necessary to make the project feasible. Therefore, adjustments must be 
made by the project owner to reduce cash flow to 10% or less of 
operating expenses. If the owner declines, HUD will reduce PBV rents or 
the number of PBVs, so the project complies with the 10% requirement.

[[Page 12004]]

D. Requesting a SLR for a Mixed-Finance Project

    For Mixed-Finance projects that also include PBVs, the SLR is 
handled as part of the Mixed-Finance project review process without a 
separate PBV SLR review. SLRs for Mixed-Finance projects are only done 
by HUD and may not be done by an HCA. Mixed-Finance reviews are done by 
HUD's Office of Public Housing Investments (OPHI) at HUD Headquarters. 
This provision also applies to Mixed-Finance projects with PBVs that 
are undertaken as part of the Choice Neighborhoods Grant Program, as 
well as Choice Neighborhoods projects that have PBVs, but no public 
housing. This includes MTW local nontraditional development (LNTD) 
proposals. OPHI prepares the SLR as part of the project review process 
without a separate PBV SLR review.
    As it relates to the PBVs, Mixed-Finance projects must comply with 
the SLR standards identified above in the Notice. In addition to this 
review, the project will also be reviewed to assure compliance with the 
provisions of 24 CFR 905 Subpart F, and other applicable guidance, 
including the following:
     The ``Cost Control and Safe Harbor Standards for Rental 
Mixed-Finance Development,'' dated April 9, 2003 or any successor 
document.
     Total Development Cost (TDC) and Housing Construction Cost 
(HCC) limits imposed on the project, pursuant to HUD Notice PIH-2011-38 
or successor notice.
     The HUD Pro Rata Test, which assures that the proportion 
of HUD public housing funds committed to development of the project 
does not exceed the proportion of public housing units in the project. 
For example, if there are 120 units in the project and 50 are public 
housing, 42% of the units are public housing. Therefore, the amount of 
public housing funds contributed to the development of the project may 
not exceed 42% of the development budget, including hard and soft 
costs.
     HUD will review the amount of LIHTC equity to be invested 
in the project to ensure that the sale of LIHTCs results in an amount 
of net tax credit equity that is consistent with amounts generally 
contributed by investors to similar projects under similar market 
conditions, and that the amount is not less than 51 cents for each 
dollar of tax credit allocation awarded to a project. If the project 
receives 51 cents or less of LIHTC equity or does not receive a market 
rate of equity, it is subject to additional review to reassess the 
project's fees and costs.

E. Outcome

    (A) HUD:
    If HUD completes the SLR and determines the PBV assistance complies 
with the standards set in this Notice, where the PBV assistance will 
not result in excessive government subsidy, HUD will certify compliance 
pursuant to 24 CFR 4.13 and the local HUD Field Office will notify the 
PHA in writing.
    If HUD completes the SLR and determines that the amount of 
government subsidy, including the PBV assistance, is excessive, HUD 
notifies the PHA. The notification includes a recommendation to reduce 
the amount of PBV assistance or a determination that PBV assistance 
cannot be provided. Once the PHA receives HUD's decision, the PHA must 
notify the owner in writing of the outcome and work with the owner to 
restructure, as needed. Revised materials must then be resubmitted to 
the HUD Field Office for review.
    (B) HCA:
    If an HCA completes the SLR and determines that PBV assistance 
complies with the above standards of this notice and does not result in 
excessive government subsidy, the HCA must notify the PHA and submit a 
certification to HUD at [email protected] with 
a copy to the Director of the local HUD Office of Public Housing 
(https://www.hud.gov/program_offices/public_indian_housing/about/field_office) stating that the PBV assistance to be provided is in 
accordance with HUD SLR guidelines in this Notice and that a 
determination has been made that it does not result in excessive 
government subsidy. The AHAP/HAP contract may then be executed if the 
environmental approval is received. If the SLR is performed by an HCA, 
subsequent approval of the SLR by HUD is not required. The HCA 
certification must include the documents outlined in Section 10. See 
Appendix C for a sample HCA certification letter and Appendix A for 
required information.
    If the HCA SLR determines the public assistance amount is 
excessive, the HCA must notify HUD, in writing, with a copy to the PHA. 
The notification will include either a recommendation to reduce the 
amount of PBV assistance or the amount of LIHTC allocation or a 
determination that PBV assistance cannot be provided. HUD will consult 
with the HCA and the PHA prior to issuing a final determination to 
adopt the HCA's recommendation or to revise it. The PHA must notify the 
owner in writing of the outcome and work with the owner to restructure, 
as needed. Revised materials must then be resubmitted to the HCA and 
the HUD Field Office for review.
    When a proposal for PBV assistance is contemporaneous with the 
application for or award of LIHTCs, the required SLR may be fulfilled 
by the HCA in accordance with IRC section 42(m)(2) review if such 
review substantially complies with the HUD SLR requirements and 
guidelines.
    (C) Mixed-Finance Projects: If HUD completes the SLR and determines 
the PBV assistance and other public housing assistance complies with 
the above standards of this Notice for Mixed-Finance projects and thus 
does not result in excessive government subsidy, HUD will certify 
compliance pursuant to 24 CFR 4.13 and notify the PHA.
    For projects that fail to comply, HUD will notify the PHA, which 
must (i) work with the owner to restructure the project so it complies 
with the above standards for Mixed-Finance projects and resubmit the 
revised documentation to HUD for approval, or (ii) provide sufficient 
justification to HUD to allow HUD to approve a variation(s) from the 
above standards.

F. Timing

    In accordance with program regulations at 24 CFR 983.55, a PHA may 
not execute an AHAP contract until after the SLR is completed and 
approved by HUD or the HCA. The AHAP also may not be executed until 
there is a completed environmental review (ER) and written approval by 
the responsible entity or HUD, pursuant to 24 CFR part 50 or Part 58 
and PIH Notice 2016-22. The local HUD Field Office must receive the 
completed SLR and either approve the Request for Release of Funds or 
complete a Part 50 environmental review prior to notifying the PHA that 
it may execute the AHAP. The PHA may request an SLR and environmental 
review simultaneously. The Field Office confirms to the FMD and/or the 
HCA that the ER process is complete.
    If the owner reports to the PHA the addition of any governmental 
assistance before or during the AHAP contract when no SLR was initially 
required because the project had not received and did not anticipate 
receiving governmental assistance, then an SLR is required to be 
requested by the PHA at the time of the owner's report.

III. Housing Credit Agency Participation and Certification

    An HCA is ordinarily established for the purpose of allocating and 
administering the LIHTC program under

[[Page 12005]]

section 42 of the Internal Revenue Code (IRC). With HUD approval, HCAs 
may perform SLRs for proposed PBV projects that include LIHTCs as part 
of the proposed financial assistance. If there are no LIHTCs, HCAs 
cannot conduct the SLR. SLRs without LIHTCs will only be conducted by 
HUD. Currently 29 states have a HUD-approved HCA; the remaining 21 
states may seek HUD approval to conduct SLRs for PBV projects, by 
submitting a letter to HUD notifying HUD of their intent to 
participate. Appendix B is sample letter.
    Pursuant to the requirements outlined herein, as well as the 
Memorandum Of Understanding (MOU) between participating HCAs and HUD, 
HCAs are required to provide notification to the FMD through the FMD 
mailbox of any SLRs approved on HUD's behalf by no later than 30 days 
from the date of authorization. Notifications of approval must contain 
the following documentation:

 Copy of the Signed HCA Certification as shown in Appendix C
 The HCA's Internal Recommendation and Sign-off
 The Developer's Disclosure of Sources and Uses of Funds
 The Developer's Operating Pro Forma Considered
 Copy of the PBV Commitment/Award Letter
 HUD Form 2880, and
 Rent Information and Project Summary
    a. Project Name and Address
    b. PHA name and code
    c. Field Office name and code
    d. HCA Name
    e. PBV Type: Rental Assistance Demonstration (RAD), Veterans 
Assistance and Supportive Housing (VASH), and/or Regular
    f. Elderly, Disabled, Homeless, Non-Elderly Disabled, Low-Income, 
and/or Veteran.
    g. Is the Project New Construction or Rehabilitation?
    h. Amount Per Dollar of Syndication Proceed
    i. Number of PBV Units Approved by Bedroom Size
    j. Debt Coverage Ratio: ____
    k. Project meets Cash Flow Criteria (Y/N)

IV. Overview Chart

    The following chart summarizes the types of projects that require 
an SLR, the entity authorized to perform the SLR and the required 
certification. 102 (d) Certification is the owner's certification of no 
additional government funding using form HUD 2880.

------------------------------------------------------------------------
                                                            102 (d)
  Type of project and scenarios      SLR reviewer        certification
                                                           required?
------------------------------------------------------------------------
PBV subsidy without LIHTC.        HUD...............  Yes.
 However, project is new
 construction or rehabilitation,
 as defined in 24 CFR Sec.
 983.3, with 2 or more forms of
 government assistance.
PBV existing housing, as defined  No SLR required...  No.
 in 24 CFR 983.3.
PBV new construction or           No SLR required...  No.
 rehabilitated housing, but PBV
 is the only form of government
 assistance.
PBV subsidy with LIHTC, new       HCA or HUD........  If by HCA,
 construction or rehabilitated                         certification not
 project.                                              required.
                                                       Otherwise, HUD
                                                       certifies.
Mixed-finance projects, with or   HUD...............  Yes.
 without LIHTC, with or without
 PBV, with or with other forms
 of government assistance.
------------------------------------------------------------------------

V. Monitoring

    HUD performs quality control reviews of SLRs performed by 
participating HCAs by examining the following:

 If all required document and materials are available to the 
reviewer
 If values are correctly determined within the approvable range
 If values are above safe harbor standards
 If documentation was provided to justify higher costs
 If the subsidy was reduced correctly (if applicable)

    If any required documentation is not provided, or any portion of 
the review is performed incorrectly, HUD requires appropriate 
corrective action. When an SLR is performed by an HCA, subsequent 
approval of the SLR by HUD is not required.

VI. Paperwork Reduction Act

    The information collection requirements contained in this notice 
are currently approved by the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and 
assigned OMB control numbers 2577-0169. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a currently valid control 
number.

    Dated: February 21, 2020.
R. Hunter Kurtz,
Assistant Secretary for Public and Indian Housing.

Appendix A: PHA Submissions

    PHAs are responsible for collecting information from project 
owners and assembling it in an SLR request submitted to the local 
HUD Public Housing Field Office or HCA. SLR requests must contain 
the following information. Assembly using a binder is recommended. 
Incomplete submissions will be returned.

------------------------------------------------------------------------
   Required elements of an SLR application &
                   checklist                              Check
------------------------------------------------------------------------
1. Subsidy Layering Review request memorandum:
 Clearly identify the PHA, the PHA number, the
 Field Office number, the project's name, the
 project's total number of units, and the
 number of PBV units requested. For a sample
 memorandum see Attachment 1 of PIH Notice
 2013-11 or newer version superseding it.
2. Project Description: Short narrative
 identifying ownership, type of activity
 (rehabilitation or new construction),
 location (including county), total units,
 requested PBV units, PBV type (RAD, VASH,
 regular), utility allowances, bedroom
 distributions, supportive services (if
 applicable) and residential population
 (homeless, veteran, elderly, low-income
 families) The narrative should also identify
 any exceptions applicable to the project
 (e.g., number of PBV exceeding the Project
 Cap).

[[Page 12006]]

 
3. Accounting Statement of Sources and Uses of
 Funds: Identifying each source and indicate
 type (loan, grant, syndication proceeds,
 contributed equity). Sources generally
 include only permanent financing and grants.
 If interim financing or a construction loan
 is proposed, provide details in project
 description. Separately identify detailed
 uses, avoiding broad categories such as
 ``soft costs.'' Under acquisition costs,
 identify purchase price separately from
 related costs such as appraisal, survey,
 title, recording and legal fees. Include
 separate line items representing construction
 contract amount, builder's profit, builder's
 overhead and total project costs. [Complete
 HUD Form 50156]
4. Description of funding sources: Loans
 including principal, interest rate,
 amortization, term, and any accrual,
 deferral, balloon or forgiveness provisions.
 Describe any lender, grantor, or syndicator
 requirements for reserves or escrows
 requirements. Describe if a lender receives a
 portion of the net cash-flow, either as
 additional debt service or in addition to
 debt service. Identify the amount of LIHTC
 and include IRS form 8609.
5. Commitment Letters: Lenders and other
 funding sources evidence their commitment to
 provide funding and disclose significant
 terms. Signed loan agreements and grant
 agreements meet this requirement. However,
 proposal letters and letters of intent do not
 meet this requirement.
6. Developer's Commitment Letter: Delineating
 any arrangements, contributions, donations,
 significant terms or transfer of funds from
 the developer and/or participating partners
 such as deferred developer's fees, cash
 contributions, and equity investments.
7. HOME Commitment Letter: (When applicable)
 Signed document clearly identifying
 requirements of the HOME designated units and
 intended rents.
8. Supportive Service Commitment: (When
 applicable) A signed Memorandum of
 Understanding that describes the type of
 services to be provided, frequency, terms of
 service and resident eligibility.
9. Appraisal Report: Based on the ``as is''
 value of the property, before construction or
 rehabilitation, and without consideration of
 any financial implications of tax credits or
 project-based voucher assistance. An
 appraisal establishing value after the
 property is built or rehabilitated is not
 acceptable unless it also includes an ``as
 is'' valuation. The date of the appraisal to
 be within six months of date of submission.
10. Stabilized Operating Pro Forma: Including
 projected rental, commercial, and
 miscellaneous gross income, vacancy loss,
 operating expenses, debt service, reserve
 contributions, with cash-flow projections,
 and debt service ratios; income and expenses
 trended at a consistent percent. [Complete
 HUD Form 50156]
11. Low-Income Housing Tax Credit Allocation
 Letter: Issued by the authorized tax credit
 allocation agency, identifying the amount of
 LIHTCs reserved for the project.
12. Historic Tax Credit Letter: Issued by an
 authorized historic credit agency, disclosing
 the estimated historic tax credit amount
 awarded to a project located in a designated
 historical area.
13. Equity Contribution Schedule: If equity
 contributed to the project is paid in
 installments over time, provide a schedule
 showing the amount and timing of planned
 contributions.
14. Bridge Loans: Providing details if the
 financing plan includes a bridge loan where
 equity contributions proceeds planned over an
 extended time can be paid upfront.
15. Disclosure, perjury and identity of
 interest statement (Form HUD-2880) completed
 by the owner.
16. PBV award letter: Identifying the housing
 authority's approval of project-based voucher
 assistance for the project by number of units
 and bedroom distribution.
17. PHA rent certification letter: Documenting
 proposed contract rents, utility allowances,
 and gross rental amounts for assisted units.
 Include rent reasonableness documentation or
 comparability analysis as evidence of rent
 determination and certification.
18. Environmental Clearance: Completion of the
 environmental review and environmental
 approval is required before AHAP approval can
 be granted. At the time of initial submission
 of the SLR request, submit evidence that a
 request for a part 58 review is submitted to
 the responsible entity or a part 50 review is
 submitted to the Field Office.
------------------------------------------------------------------------

Appendix B: HCA Notice of Intent To Participate

U.S. Department of Housing and Urban Development
PIH Financial Management Division, Room 4232
451 Seventh Street SW
Washington, DC 20410

By: Email: pih.financial.management.[email protected]

Re: Intent to Participate on Subsidy Layering Reviews

To Whom It May Concern:

    The undersigned is a qualified Housing Credit Agency (HCA) as 
defined under Section 42 of the Internal Revenue Code of 1986 and 
hereby notifies the United States Department of Housing and Urban 
Development (HUD) of our intention to conduct subsidy layering 
reviews (SLRs) pursuant to HUD's requirements for the purpose of 
ensuring the combination of assistance under the Section 8 Project-
Based Voucher (PBV) Program with other federal, state, or local 
assistance does not result in excessive compensation. By signifying 
this notice, the undersigned hereby certifies that:
    Required personnel reviewed the statutes identified in Federal 
Register Notice (Insert new reference) Contracts and Mixed-Finance 
Development, and 24 CFR 983.55.
    The undersigned understands its HCA responsibilities and 
certifies it will perform SLRs in accordance with all present and 
future statutory, regulatory and HUD requirements. The undersign 
acknowledges participation continues unless and until HUD revokes 
this notice or the undersigned informs HUD, in writing with a 30-
day-notice, of its decision to withdraw. Upon HUD approval, the 
undersigned shall immediately assume the responsibility of 
performing SLRs.

Name of agency and address:
Name, title and address if authorized official
Phone, FAX, and email:
Date of execution:

    Transmit signed and dated notice of Intent to Participate as a 
PDF attachment to Miguel Fontanez at pih.financial.management 
.[email protected] with subject line identified ``Submission of 
Notice of Intent to Participate.'' For questions concerning the 
submission and receipt of the email, call the Financial Management 
Division at (202) 402-4212.

Appendix C: HCA Certification

U.S. Department of Housing and Urban Development
PIH Financial Management Division, Room 4232
451 Seventh Street SW
Washington, DC 20410

By: Email: pih.financial.management.[email protected]

Re: Certification of Subsidy Layering Review

To Whom It May Concern:

    For purposes of providing of Section 8 Project-Based Voucher 
(PBV) Assistance authorized pursuant to 42 U.S.C. 8(o)(13), section 
2835(a)(1)(M)(i) of the Housing and Economic Recovery Act of 2008 
(HERA), section 102 of the Department of Housing and Urban 
Development Reform Act of 1989, and in accordance with HUD 
requirements, all of which address the prevention of excess 
governmental subsidy, I hereby certify that

[[Page 12007]]

the PBV assistance is not more than is necessary to provide 
affordable housing after taking into account other government 
assistance for the following project:

Name, address of project:
Name, address of PHA:
Phone, FAX, and email:
Name, address of HCA:
Date of HUD's approval of HCA's intent to participate:
Name of Authorized HCA Certifying Official:
Signature of Authorized HCA Certifying Official:
Date:

    Transmit signed and dated SLR certification as PDF attachments 
to Miguel A. Fontanez at pih.financial.management.[email protected], 
with a copy to the Director of the local HUD Office of Public 
Housing: https://www.hud.gov/program_offices/public_indian_housing/about/field_office, with subject line identified ``SLR 
Certification--Project Name, City, State'' For questions concerning 
the submission and receipt of the email, call the Financial 
Management Division at (202) 402-4212.

[FR Doc. 2020-04147 Filed 2-27-20; 8:45 am]
BILLING CODE 4210-67-P